The road to recovery: Under construction – competition policy at work

Let me start with a warm welcome to the OECD and to the 9th meeting of the Global Forum on Competition. It is my pleasure to welcome EU Competition Commissioner Almunia and to congratulate him on his new role. Commissioner Almunia takes the helm at a testing time, when a concerted global effort is needed to promote competitive markets which will support the recovery from the crisis. Let me also welcome Mr Frédéric Jenny, Chairman of the OECD’s Competition Committee.

Emerging from the crisis

Today, the Global Forum on Competition meets as our economies are emerging from the worst financial and economic crisis of our lifetimes. We find ourselves in a situation which has tested faith in the open market model. But the crisis was not so much a failure of markets, but a failure of regulatory frameworks. We need to rebuild the global institutional framework to restore confidence in financial markets and prevent potential future crises. The economic turmoil has reminded us that the challenge for governments is to have stable but competitive financial markets. The OECD is at the forefront of this debate.

The priority now is to stabilise the financial system and restart lending. And so, the “question of the day” is: how are we going to get back on track? How do we restructure for sustainable growth and job creation? No matter what, competition must be at the heart of it. A consistent and clear competition framework will promote economic recovery; it is a key driver for productivity and growth.

Building sound market structures is key

Let me say it very clearly, there is no magic bullet here. Governments will need to balance the need for speed against getting the rules right. They must carefully weigh-up the extent and nature of reforms so that they avoid imposing unnecessary regulatory burdens. Competition authorities must make the case that markets underpin economic well-being – but only if they work well. Success will require cooperation between business, regulators, competition authorities and policy makers.

Pro-competitive reforms raise productivity, stimulate economic growth and encourage employment. Economies that have supported stronger competition policy have enjoyed not only consistent growth in output, but high employment too. In Australia, the National Competition Policy reforms improved productivity and thus produced a permanent increase in GDP of 2.5%.

This Global Forum can make an important and timely contribution. It is an occasion to exchange experiences and views. It will help policy-makers around the world to understand better the common problems they face and to work together on solutions to them. Solutions that deliver value to consumers, innovation, and economic growth. Rest assured, the OECD will continue to work closely with all of you, to ensure the principles of sound competition are built into the foundations of recovery plans.

Aiming for less and better subsidies

As your first topic of the day highlights – we should all work to ensure that recovery plans do not become long-term protectionist measures.

Massive government interventions helped avoid the worst consequences of the crisis - the collapse of financial markets. We acknowledge that public subsidies may be necessary and appropriate in some circumstances. They must be well-targeted to only fill the gaps left by genuine market failures. History has shown that long-term protection will neither accelerate the recovery, nor deliver sustainable growth. And this is true for developed and developing countries alike.

The challenge for governments today includes defining a process for the timely withdrawal of state-funded crisis measures across the board. When this takes place, advocacy by competition authorities will be essential. You are uniquely placed to shine a bright competition torch on the economic consequences of subsidies and convince policy makers that a level playing field will be central to recovery strategies. The OECD is ready to assist governments in these trying times to ensure that their policies do not unduly restrict competition.

Better value for public procurement

The current crisis has also increased pressure on governments to make public expenditure more effective. Collusion and corruption in public procurement - your second topic for this Global Forum - significantly affect the economy. Public procurement accounts for at least 15% of GDP in OECD countries; even more in developing countries for example around 30% in India. Contract prices can rise by 20% or more when bid-rigging conspiracies are successful. It steals money from taxpayers and siphons it away from other important government programmes, such as health, education and construction. The poorest are thus often hit the hardest.

As the recovery gathers momentum, so must the determination to root out collusion and corruption. The OECD is working hard to increase awareness of the enormous harm caused by cartel activity and bid rigging, which are a significant part of the problem. The fight against bid rigging and corruption help to identify and avoid possible cases early on.

And this is already delivering lasting results. Specific and targeted OECD projects in Brazil and Chile have strengthened detection of bid rigging and means to combat it. Following these successful initiatives, we are now launching a new project in South Africa.

Higher priority must be given to the fight against bid rigging and corruption. By working together competition authorities and anti-corruption officials can maximise their impact. This Forum is an opportunity to take this discussion forward, with the support of the OECD’s multi-disciplinary platform.

The OECD’s policy advice and best practices provide pro-competitive solutions for all countries. This includes emerging economies that have largely weathered the storm. But they may face infrastructure and institutional obstacles that hold them back. Today’s Peer Review of Brazil’s competition law and policy is a good example. It will support Brazil’s efforts to implement essential reforms for a modern and effective competition regime.

I look now forward to hearing the Commissioner’s keynote speech on competition, state aids and subsidies. It is indeed of great interest as we examine the role and effect of public subsidies in times of economic crisis.

Commmissioner Almunia, welcome again and let me say that I am glad that we share the main message for today: competition policy remains an essential tool for delivering economic growth and job creation. The road to recovery for a stronger, cleaner and fairer world economy must be paved with sound competition principles.